The Key Subtle Notes From Apple’s Earnings Call

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Apple’s Tim Cook: “China Was Very Key To Our Results.”

When Apple announces their earnings, they typically do so with much pomp and circumstance. You get a superlative-laden press release, which in recent years have been more than backed up by massive numbers. But it’s the earnings call itself that is often even more interesting. Because there are other, more subtle things said, almost in passing.

Like today, for example, when Apple COO Peter Oppenheimer casually mentioned that Apple would release their next major operating system, OS X Lion, tomorrow morning. Sure, everyone knew it would be coming before the end of the month, and tomorrow had been rumored this week as the launch date, but no one knew for sure — until Oppenheimer decided to disclose it during his opening statements on the earnings call.

Of course, this was calculated. Basically everything Apple does is calculated. That’s why even what they say in passing is interesting. So let’s look over some of those things from today.

  • On top of record revenue and profit, Apple saw record iPhone and iPad sales this past quarter.
  • While the iPad has been outselling the Mac for a few quarters now, remarkably, the iPad is now already a bigger business than the Mac overall (the Mac obviously has a much higher average selling price, which had kept it ahead).
  • Apple sold more than twice as many iPads as Macs last quarter.
  • iPod sales continue to fall fast (down 20 percent year over year) and that’s with the strong-selling iPod touch, which makes up more than half of all iPod sales.
  • The iPod still controls over 70 percent of the MP3 market, which clearly means the entire market continues to shrink too.
  • iTunes revenue is up 36 percent year over year.
  • Apple sold every iPad they could make in the last quarter.
  • The iPad is now available in 64 countries around the world.
  • There are now 222 million cumulative iOS devices — this is up from 200 million just last month.
  • Apple Store revenues are now over $3.5 billion.
  • There are now 327 Apple Stores around the world (but only 4 new ones were opened last quarter).
  • 73.7 million people visited an Apple Store last quarter.
  • Apple cash on hand is now up to an incredible $76.2 billion. For comparison’s sake, Google announced last week  that they had $39.1 billion in cash, which is also massive.
  • Apple is changing the way they do accounting for Mac users. Because of the iCloud launch this fall, Apple will now start deferring $22 for each Mac sold over a three-year period.
  • Apple has long been deferring revenues for iOS devices, but iCloud will affect this as well. They’ll now defer $16 for each iPhone and iPad sold, and $11 for each iPod touch.
  • When asked why forward-looking revenues look strong next quarter, Oppenheimer said that there is “a lot going on this fall” and dropped the hint of “a future product transition that we’re not going to talk about today”. Does that mean new MacBook Airs? The iPhone 5? A new iPad? All of them? We’ll see.
  • When asked about the iPad cannibalizing the Mac sales, COO Tim Cook acknowledged it, but said that the device is cannibalizing Windows PC sales much worse.
  • Cook called iPad 2 sales “an absolute frenzy”.
  • He also broke normal form to discuss inventory for the current month. According to Cook, Apple has been able to ramp up iPad production to the point where they can meet demand in several countries now (though he didn’t say which ones).
  • Cook spoke a lot about China, and how vital it is to Apple going forward.
  • When asked about patents disputes (Apple recently scored an early win in their suit against HTC for Android devices), Cook said, “We have a very simple view here, we love competition, we think it’s great. But we want people to invent their own stuff. We’re going to make sure we defend our portfolio.”
  • As for iPhone growth, Cook mainly credited growth in the emerging markets like China, Latin America, and the Middle East.
  • When asked about Android activation numbers, Cook called them “tricky” and implied that Google might not always be giving the most straightforward numbers. By contrast, he said Apple gives out their numbers quarterly in the earnings reports and reiterated the 222 million number, which of course includes the iPad and iPod touch.
  • Cook also took a shot at the app supply for other tablets beyond the iPad, noting that there were only “hundreds” of them, compared to Apple’s over 100,000 iPad-specific apps. “The other tablets don’t seem to be getting any traction to speak of,” he said.
  • When asked about Apple TV, Cook said that the company is pleased with it, but reiterated that it continues to be a “hobby”. By this, he means that its numbers can’t yet stand up to the iPhone, iPad, Mac, or iPod. But they still think there will be something there, and they will continue to invest in it.
  • When asked about the possibility of pre-paid iPhones, Cook said that in the emerging world, they’ve typically gotten carriers to expand post-paid options. But he acknowledged that they’re “not avoiding pre-paid”, adding “we know we need to play there”. This seems to hint at the rumored cheaper iPhone in the works.
  • When asked why the Mac business wasn’t growing as quickly as it once was, Cook noted that they’re still easily beating the overall PC industry, but gave 3 specific reasons. 1) iPad cannibalization to some degree. 2) Some customers had been delaying purchases until OS X Lion is available. 3) The only new Mac to launch this quarter was a new iMac, which doesn’t sell as well as new laptops, which they didn’t launch this quarter.
  • Apple’s Mac business has beaten the overall PC industry in growth for 21 consecutive quarters now.
  • Cook noted that last quarter, Apple sold more iPads than Macs to the K-12 groups. He said that even Apple was “shocked” by this.
  • When asked about iCloud and the transition to the cloud future, Oppenheimer said they are well prepared thanks to iTunes and the App Store, but acknowledged that they might have some things to learn in the space.
  • When asked about different possible price points for the iPhone, Cook noted that the iPhone 3GS is available for $49 in the U.S. with a contract. But he said that Apple would only make products they were proud of, and thought were the best in the world. “If we can do that and the price is lower, we’ll do it,” he said — another potential cheaper iPhone hint.
  • He also said that in China, it’s up to Apple to get people to pay a little more than perhaps they’re used to for a product. But Cook believes people will do it when a product is better.
  • Finally, when a question asked when we might see more video content on iTunes, Oppenheimer said to “look for more content later this quarter”. “We have some neat stuff coming,” he said.